Social Conflicts Deepen... KEC Says "Wage Increases at Large Corporations Should Be Minimized"

by Ryu Hyunseok

Published 24 Apr.2022 12:30(KST)

Social Conflicts Deepen... KEC Says "Wage Increases at Large Corporations Should Be Minimized"

[Asia Economy Reporter Yoo Hyun-seok] The Korea Employers Federation (KEF) has urged large corporations to minimize wage increases this year, explaining that wage disparities cause job mismatches and deepen social conflicts.

On the 24th, the KEF announced that it sent the "2022 Wage Adjustment and Corporate Wage Policy Recommendations" to companies on the 22nd.

The KEF recommended that wages at high-paying large corporations be increased only to a minimal level in 2022. For companies with good performance, compensation should be provided in the form of temporary bonuses. However, it emphasized restraint in setting excessive bonuses that could deepen social disparities.

The KEF stated, "Regarding this year's basic principles for wage adjustments, wage disparities caused by high-rate wage increases exceeding productivity, centered on large corporations and regular workers, are causing job mismatches and deepening social conflicts. In particular, the excessive competition to increase compensation among some large corporations may help secure talent in the short term but should be noted that it could lead to a decline in corporate competitiveness in the future." It added, "For companies with capacity, we propose using those resources to support improvements in the working environment of small and medium-sized partner companies and vulnerable groups."

It also stressed the need to promote job recovery and expand youth employment through wage stability. The KEF evaluated that the capacity of Korean companies to create jobs has significantly declined recently, and with the COVID-19 pandemic overlapping, the employment recovery in the private sector, especially youth employment, has greatly worsened.

In this situation, excessive wage increases could lead to a decline in the medium- to long-term competitiveness of the companies concerned and result in job reductions, causing nationwide employment instability. Therefore, efforts should be made to establish a foundation for job creation, such as expanding youth hiring through wage stability.

Based on the recommendation for wage stability, the KEF explained that a comparison of wage levels by company size between Korea and major countries such as Korea, Japan, and the European Union (EU) from 2002 to 2018 showed that wage increase rates in Korean large corporations were significantly higher.

It was analyzed that wages in Korean large corporations increased by 120.7%, from 2,284,000 KRW in 2002 to 5,042,000 KRW in 2018. In contrast, large corporations in the EU increased from 2,593 euros to 3,562 euros, a 37.3% increase. In Japan, wages decreased by 5.1%, from 483,800 yen to 459,000 yen. During this period, wage increase rates in small and medium-sized enterprises (SMEs) in Korea also recorded 87.6%, higher than the EU (39.1%) and Japan (0.8%).

The KEF explained that due to the high wage increase rate in Korean large corporations, the wage gap with SMEs was also larger compared to other countries. As of last year, the average monthly wage of Korean workers was 3,893,000 KRW. Wages in large corporations with 300 or more employees were 5,687,000 KRW, while those in businesses with fewer than 10 employees were 2,808,000 KRW. If the wage of workers in large corporations with 300 or more employees is set as '100,' the wage of workers in businesses with 1 to 9 employees was only 49.4.

Also, when assuming large corporation wages as 100 to assess SME wage levels, the EU average across 15 countries was 75.7, Japan was 68.3, and Korea was 59.8, showing that Korea had the largest wage gap. Compared to 2002, when the wage gap between large corporations and SMEs was 74.7 in the EU, 70.4 in Korea, and 64.2 in Japan, only Korea saw an expansion of this gap, according to the KEF.

Lee Dong-geun, KEF Senior Vice Chairman, emphasized, "Despite the labor market polarization worsening after the COVID-19 pandemic, large corporation labor unions are demanding high wage increases. Since it is nearly impossible for SMEs with insufficient payment capacity to reduce the current wage gap, wage stability in high-paying large corporations is absolutely necessary."